The amount of money ran by Close Brothers’ asset management jumped by £370m in the five months ending 31 December, its latest trading update shows.
Assets under management grew 4 per cent from £9.1bn on 31 July 2013 to £9.5bn through investor inflows and market gains. The firm says its asset management business is making progress towards its medium-term targets.
Analysts at Numis Securities comment: “Private client asset and wealth management is an attractive low capital intensity business, where we see structural growth.
“Close expect the asset management division to see net inflows this year opposed to the net outflows seen in recent years. The margin increased, largely due to mix and we see further potential for improvement here.”
It expects asset management profits to increase 160 per cent to £10.4m for the year.
Close’s Winterflood Securities business has improved since the previous financial year with rising market sentiment.
“Increased trading activity and investor risk appetite have ensured that income per bargain and average bargains per day remain ahead of the previous year,” the firm says.
“The improvement in AIM trading, particularly in the first quarter, has supported income per bargain.”
Close Brothers says its banking division performed well over the period, with the ratio of bad debts falling and its net interest margin staying “relatively stable”. The loan book rose 4 per cent to £4.8bn.
However, Numis says while credit quality is close to an all time best, the loan growth is continuing its slowdown with growth less than half the same period last year.
It believes the firm cannot maintain its current return on equity and as competition grows the rate will compress by more than 20 per cent.
It recommends reducing stakes in the company.
“Overall we do not expect to materially change our forecasts with lower than expected volumes in the bank being broadly offset by the exceptionally low impairment charge,” it says.
“We caution investors that the current ROE of the bank is exceptional and is expected to fall with recovery,” it continues.
Close Brothers says its funding, liquidity and capital positions are robust.
The firm’s half year results will be announced on 11 March.